Recently there was a few news articles on people who bought old HDB at high prices (Buyers who pay high prices for old flats face reality check). One person was quoted by Straits Times paid a whopping $700,000 3-room flat at Whampoa which has a remaining HDB leasehold of only 55 years. Apparently, it was the third highest price paid last year in terms of psf for HDB with less than 60 years of lease.
So why people do not mind paying so much money for HDB with a limited remaining HDB leasehold?
They are high networth with lots of money to burn
One obvious reason is because they could be high networth. After having so many possessions, they got bored with life and decided to burn some cash to buy properties with a long-term depreciation to zero.
But this reason does not sound very right because a person can only buy a HDB if he or she does not have any other properties. Maybe such a person is not so high networth afterall.
Hope that the old HDB will enbloc
Minister Lawrence Wong was alarmed that old HDB flats are fetching such high prices and he postulated that these buyers were hoping to benefit from Selective En bloc Redevelopment Scheme (SERs). Unfortunately, only a minority of old flats will be offered the SERs.
I find Singaporeans are very naïve. Assuming there is a high chance of old HDB enbloc, it is still a bad idea to expect one can really benefit from the enbloc exercises. The simple reason is because in a SERs exercise, the government will compensate existing owners the ‘market rate’ of the HDB flat plus a fixed SERs grant between $15,000 to $30,000 to buy a replacement new flat. There are two variables that put these owners at a disadvantage: The ‘market price’ which is solely determined by one party (government) and the unknown price of the replacement flat (again set by the same party – the government).
This is in contrasts with enbloc exercises by private property owners in which sellers can negotiate with the developer.
No long term planning
Perhaps the main reason why people overpay for their HDB is because of the lack of long term planning. In the same news article, one person bought a 5-room HDB for nearly $1m with a remaining HDB leasehold of just 56 years. The reason why he bought is because of location. I really wonder what would he say about his location when his million dollar HDB sinks towards zero when he is old. Will he be asking taxpayers to bail him out? I certainly would not.
Assume the problem of being kicked out will never happen
There was another news article which reported that the residents of Geylang Lorong 3 have only 3 years left to stay because the land will return to the State (Home worries surface as lease expiry looms). One resident was quoted as saying “"My home is still standing. I don't understand how it can be worth nothing. Will I still have a home to live in?" Likely the answer is ‘no’ otherwise it will imply taxpayers will have to bail her out.
Another resident of Geylang Lorong 3 was quoted as saying he regretted not selling his property 10 years ago when it was worth $200,000. Personally, I have told many of my clients to sell their properties before its too late. Majority did not want to listen to me and always giving excuses like the property prices no good, location too good, wife will not approve blah blah.
Recommendations
So, what are my recommendations?
Buy a property based on needs and not wants. Sometimes we get mixed up between needs and wants.
Be contented and do not think you are very rich. Rich people don’t buy 99 years leasehold properties. They buy freehold. Very rich people are property developers themselves.
It is important to do long-term planning. Don’t assume everything will work out themselves in the future. What the government can do is limited. If the government tries to do too much for long-term planning, it runs the risk of being a nanny state which some already accused them of it (e.g., Cannot take out CPF, force to pay high Medishield premiums blah blah blah).
Downgrade and monetise your property before its too late. You cannot eat the bricks off the property for retirement. And stop blaming wife for not giving permission to sell the property (I do not know why wives are always blamed.)
Here is an interesting graph on what happens when your HDB lease runs out:
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Hi, technically, a couple can own a private property then buy a HDB if one spouse owns the private property, then the other spouse buys the HDB. And then, the private-property owning spouse can still continue buying private property. Not recommended – but that is how I understand some are skirting the rules.
Does not work. For a couple, purchase of HDB is under Fiance/Fiancee scheme in order to form a family nucleus. All the ‘listed persons’ in the resale flat application who owns a private property must dispose of the property within 6 months. For a Fiance/Fiancee, the ‘listed person’ is either a co-applicant or an occupant.
In other words, it is possible for just one spouse to be the sole legal owner of the HDB but it is mandatory for the other spouse to be the ‘listed person’ as an occupant under the Fiance/Fiancee scheme.
Such complicated rules just means that a HDB is a poor investment.
http://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/resale/eligibility-schemes
The legal way is to 1st buy HDB, then wait 5 yrs MOP & then buy private properties. HDB actually allows you to rent out your HDB flat while you stay in your private properties.
HDB flats can still fetch 5+% rental yields which is more than double the typical 2+% rental yields of condos now.
Another unethical way is to have a real but “fake” divorce. One takes over sole ownership of existing HDB, while the other can buy another resale HDB under single/divorce citizen scheme (must be >=35 yrs old). If the existing HDB flat has already fulfilled the 5-yr MOP, then the divorced couple can stay in the 2nd newly purchased resale HDB, while renting out the first flat.
As HDB buyers cannot self-determine enbloc as and when they want, hence they should be prepared to sell their HDB before it gets near the 40-yr-old mark. This is becoz CPF restrictions for leasehold property starts when leases have less than 60 yrs left. From real-world experience in other cities around the world, prices for leasehold property start to really accelerate downwards when leases start to have less than 40-50 years left.
Hi Wilfred, I like to read your articles. .it widens my knowledge n very interesting. Good